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Month: June 2013

This week’s learning is part 4 of a 5 part series on Personal Finance and Investing inspired by 3 books – The Investors Manifesto by William J Bernstein, I Will Teach You to Be Rich by Ramit Sethi, and The Millionaire Teacher by Andrew Hallam. (Part 1, 2, 3)

The only known reliable long term investment strategy is investing in index funds.

What are index funds? Index funds are computer managed funds that are a representation of the whole market. If you own the index of the whole stock market for example and Apple’s value is 3% of the stock market, 3% of your index will contain Apple’s stocks.

The assumption behind indexes is that while individual stocks may go up and down, the whole market will grow in the long term (for the US stock market in the last century, growth has averaged around 8% per year and for the US bond market, this number is around 4-5% (subtract 2-3% inflation for real return))

How do you set up a portfolio? Your portfolio needs to have a collection of stock and bond indexes. Stocks are the source of long term growth but are volatile. Bonds have slower growth but will help you sleep peacefully at night.

– Your bond allocation % should be around your age (the older you are, the less risk you take)
– Keep your portfolio split VERY simple. Reduce overhead – aim to rebalance only once every few months

How do you keep investing and balance your portfolio?

– Make investing a purely mathematical exercise – decide your allocation and stick to it
– Imagine you have 30% bond, 70% stock allocation and your your stock allocation has gone up to 80% of the total in the past month/year – invest your money in bonds to bring the ratio back to 30-70
– Don’t worry about the markets. Just keep buying low and sell when you need to

Derek Sivers, founder of CDBaby.com has followed Bernstein’s methods ever since he sold his company for $22 million. Derek’s advice is as follows – Think very very long term i.e. 20-40 years. Your labor and active businesses are the only way to get rich. Investing is so you will have enough when you retire.

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“All the world’s a stage” – said Shakespeare. Perhaps he was among the few who realized how central acting is to our lives.. for we all play 3 roles in alternation throughout the course of our lives. We are either the victim, the fighter, or the artist.

The Victim – I am what I experience.

We are all born victims. As babies, we are powerless to do anything but cry. As we grow up, however, the victim habit is either trained out by parenting, mentoring, and self reflection.. or not.

We play victim when we choose to have no emotional distance between us and our experiences. If something bad happened to us today, we must be bad or unlucky. Why else did this happen to me? Since we’re not strong enough to face reality, we choose to do one of two things as a victim – blame or hide. Blame is the easier option and we take it whenever we see an opportunity. And, if we see no way out, we choose to hide.

As victims, we try very hard to shape reality so we come out on top and are often willing to ignore right and wrong. The coward never discusses right or wrong. The coward doesn’t like logical arguments since he knows that’s not how he will get his way. He languishes in fundamentalism – attempting to propel a belief that things were best in the past. He faces the resistance (that toxic force that gets in the way of us doing anything good) and fails again and again and again.

The resistance is very powerful – which is why we see a Hitler and an Osama Bin Laden rise every generation. Adolf Hitler wanted to study to be an artist but he found it so hard to fight the resistance to discover the best of himself that he waged a world war instead. Hitler and Osama Bin Laden were cowards of the worst kind but it’s important to remember they weren’t different from us. They just succumbed to the resistance and got into the habit of playing victim all their lives.

The victim is like the potato in hot water – he appears strong as he jumps in and comes out in pieces.

The Fighter – I am what I achieve.

At some point, either thanks to tough parenting or self reflection, we realize that we have more power than we give ourselves credit for. We face the realization that “I need to face reality and I can shape it.”

We learn that we can get what we want if we stop crying and start fighting for it. The fighter is all about the “I.” She realizes that our education systems are designed the way they are for a reason – to remind us that it’s a dog-eat-dog world out there. It’s important to be fiercely independent, compete, and become the best she can possibly be.

For survival’s sake, she must become the craftsman and set out to achieve glory. It’s war and nobody remembers the loser. This war is about fame, glory, and the sweet taste of victory. She wins because she is incredibly good. And she will work harder, fight longer, and persist to get her way and win. If she’s lucky, she will play fair and not the let the victim cloud her judgment to fight unfair. She’s been trained to view the world with cynicism since she needs a shell to guard her strong exterior. A cynic, after all, is just an extremely passionate person who doesn’t want to get hurt.

The fighter does understand emotional distance from her experiences; while still affected by her experience, her hard cynical shell protects her from it. She realizes she has the power to choose and chooses to focus on what she does in the ‘here and now’.

The fighter is like the egg in hot water – she goes in soft but comes out harder and tougher.

The Artist – I am..well..me.

The artist appears the moment we come to a profound conclusion – “There is no reality, only perception. It’s all invented and I might as well spend my time inventing a reality that makes me happy.”

It’s all invented, isn’t it? Scores, grades, brands, and competitions are just human inventions. The artist realizes that, in her imagination, she has at her beckoning the most powerful ally of them all. She realizes that she needn’t view the world as a race with winners and losers. She can choose to view it as an infinite game where she has been given the privilege to play. There isn’t just one winner – there are as many winners as we like. The pie is abundant and fills up the moment someone takes a piece. It is a world of possibility and she is out to create meaningful art.

The artist believes that the best lies ahead. In fact, she spends her entire life trying to create this reality against all odds. Yes, the artist is a touch deluded. She is deluded enough to ignore the news broadcaster who focuses on all the negative events in the world but aware enough to understand the role she has to play to make this world a better place. To be an artist, she requires a level of wisdom to view the world as a collection of possibilities. The artist’s task is the hardest of the three – she has to succeed first where the victim fails by fighting the resistance and keeping it at bay. She has to then make it a habit to do so by simply being herself, by being vulnerable, and by putting herself out there without any shell to protect her as the artist can’t and won’t tolerate cynicism.

The artist “gets” emotional distance in a way that the fighter can’t really grasp. She realizes that she is not defined by what she does. What she does is a part of her but it’s why and how she does things that makes her unique. This realization comes with a responsibility to use her gifts well and it comes with a humility as she accepts her role in making this world better. And yet, she doesn’t let her grandiose dreams get in the way of singing, dancing, and having fun. She makes ‘being happy’ an art form.

The artist like a coffee bean in hot water – it not only accepts the need to adapt but also changes the nature of the water and adds a beautiful aroma to it. It’s all invented and it invents a possibility that never previously existed.

How does this apply to us?

Look back to the past six months and you will notice that you have been the victim, the fighter, and the artist in alternation. You will also know which one you have been for the majority of the time. There are 3 things we must understand.

1. No one can make this choice for us. Our parents, mentors, and friends and can talk to us about being proactive and happy but we will never get there if we don’t make the choice ourselves. The victim, the fighter, and the artist are parts of us. We must accept them as they are and choose who we want to be most of the time. After a severe setback or disappointment, the victim WILL naturally take over. It’ll just be up to us to choose how long we give ourselves time to “play victim.” It’s okay to blame, wail, and waft in self pity once in a while. We just need to make sure it isn’t habitual.

2. It is all invented. We might as well invent a possibility that makes us happy.

2. It is all invented. We might as well invent a possibility that makes us happy. Repeat this as many times as required.

We are all artists.. our best selves are, at least. And if we aren’t making choices that bring out our best selves, what the hell are we doing on this planet anyway?

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The 2 hours after facing a disappointment or setback are the worst. Emotions rule. Logic loses out pretty darn comprehensively.

I’ve made some really dumb decisions after disappointments that I’ve regretted almost immediately. So, here’s a suggestion for a simple fix – after you face a disappointment, don’t do ANYTHING for 2 hours. If it’s a really big disappointment, perhaps take 6 hours or even 12 hours if necessary so you have some time to sleep over it or speak to someone “safe” i.e. someone who won’t take offence if you say something stupid.

The other side of the coin is to apologize profusely, forgive yourself, and move on. I trust you will bad enough to give a proper apology. That’s the easy part, however. The difficult part is to forgive yourself and move on because you’ve now managed to worsen the emotions after the disappointment.

So, get out of your room, go listen to music, or go out for a run. No action for 2 hours please..

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I have lost count of the number of survey links I’ve clicked on from hotels/services that want my feedback. In general, if it is a service I care about, I do click as I’d generally love to help. But, the moment I see that the question I answered is part of page 1 of 21, I generally quit.

As far as surveys go, the biggest reason for crap surveys is the creator-consumer gap. Either the creator has forgotten what it is like to be a consumer or is too busy pleasing his boss.

How do we fix it? Keep it simple. I believe most “quality check” surveys require 4 questions in 1 page – the only button on the page should be a large “Submit” in the bottom.

1. How did we do? (1-10 rating with 10 being perfect and 1 being dismal)

2. If not a 10, how could we make it a 10?

3. What are things we did better that we need to do more of?

4. Any other specific comments/feedback/praise?

Thank you. Let’s move on.

And sure, you can add 20 other questions in 20 different pages – but just remember that you’re minimizing the chances that a consumer who cares will ever get through a survey and give you useful feedback.

Keep it simple.

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I’m excited about a new series idea that came to mind this week. I’ve been thinking about a work related series that I would have energy for. The “Work Hacks Wednesdays” series died an untimely death simply because I felt it was getting too generic and too forced.

This new series idea is called “The Rock Star Analyst” series. Thanks to the mountains of data flying around, every one of us needs to have an analytical hat that we can put on at will. Some make their livelihood doing just that while others (especially those more senior) need it every once a while.

This series is going to focus on a lot of practical tips to get the most out of Microsoft Excel and Microsoft PowerPoint for analytical purposes but will contain a few bonus topics on creating good presentations and using Microsoft OneNote – an excellent tool very few seem to be familiar with. I intend to approach it from the point of view of someone asking “why” questions on each of these features and will point you to the best resources I know for more advanced learning. Of course, each of these tools is incredibly powerful and there are whole websites and businesses dedicated to making the most out of them – my goal would be to cover the 80% with minimal effort.

The rough plan for the series as it sits on my head is as follows –

I. Excel Rock Star1. Analysis 101 – Setting up an excel sheet for analysis (Clean up source data, use a control sheet, and understand named ranges)2. Modeling 101 – Basics to build and work with financial models (Absolute and relative referencing 101, working with huge data sheets, and leveraging excel resources)3. Shortcuts to excel success (shortcuts in the excel sense of the word :))4. Pivot Table magic5. Flexing the ‘Index + Match’ muscle 6. All about the Powerful IFs – SumIfs, AverageIfs, Countifs7. More IF power – Nesting Ifs with ORs and ANDs8. Exploring arrays formulae 9. Macros 101 10. Signing off on your excel sheets like Leonardo da Vinci12. Other stuff I don’t know so well (Useful formulae like trends and offset-indirect, excel analysis tools like regression, and data tables)

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Crap days suck. They make you feel (hopefully only temporarily) small, insignificant, and unworthy. These become tougher to handle when they come one after another. A crap week can be a significant dent to your morale and a crap month can play havoc with self esteem.

That said, I always find that extended crap periods are tremendous sources of learning. They force us to slow down, reflect, and think about why we are doing what we are doing. They also encourage us to reflect on our recent choices and decisions. If it weren’t for them, we’d probably just be cocky, shallow, and confident without reason.

Life makes us earn our stripes. Crap days/weeks/months are a key part of paying our dues.

This might not help you feel better immediately (there are very few great quick fixes after all) but the next time you feel you’re going through a really bad day and finding it difficult to find reasons to smile, take a moment to ask yourself 2 questions –

1. What am I learning from this?

2. Is it really THAT bad? (Unless you recently a lost a limb or your ability to walk, the chances are you are doing just fine.)

What doesn’t kill us does make us stronger. Crap days are typically just days of great learning in disguise.

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Jonathan Haidt is the author of the much acclaimed book “The Happiness Hypothesis” and as a bit of a happiness geek, I had been attempting to reach him for a while.

Interviewing Jonathan was a real pleasure and it feels like one of the biggest takeaways from interviewing “real leaders” is that they are all incredibly nice.

My favorite excerpts –

Love and work, and the essence of love and work are about your degree of connection or embeddedness.

Work isn’t just about achieving something. I came to understand that concept of vital engagement, of immersing yourself in something – you learn about it more and more and you become part of the community of people who are working at something. It seemed so similar to love that I realized that that’s really the key.

“Joy so lies in the doing.” It’s not the achievement, it’s the doing, and there’s a lot of scientific support showing that our brains get more pleasure from making progress towards a goal than actually achieving the goal.

I still say stupid things, but now I’m really, really good at apologizing. I know how self-righteousness works.

Know your body, and your energy cycle.

What I’m coming to see is that balance is of value in life overall but one should not strive for balance in every point in his or her life.